* U.S. July existing home sales tumble 27 percent
* S&P, Nasdaq at 7-week low, Russell 2000 tests July low
* Indexes down: Dow 1 pct, S&P 1.1 pct, Nasdaq 1.2 pct
* For up-to-the-minute market news see (Updates to early afternoon trade)
By Angela Moon
NEW YORK, Aug 24 (Reuters) - U.S. stocks slid 1 percent on Tuesday as a fall in home sales last month that exceeded even the most pessimistic estimates confirmed investor fears the economic recovery is fragile.
July U.S. existing home sales plummeted 27 percent, a drop that was twice as steep as expected, an industry group reported.
Home building and related stocks managed to pare losses after a steep decline earlier, but financial stocks suffered a sharp blow on fears that falling home values could result in new loan losses. The KBW Bank index shed 2 percent, hitting its lowest level since the beginning of the year.
The fall in the BKX "maybe is reflecting the new reality that home prices, (with) collateral backing a lot of still large bank exposure, are about to take another leg down after the spring bounce," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.
The Dow Jones industrial average was down 96.19 points, or 0.95 percent, at 10,078.22. The Standard & Poor's 500 Index was down 11.53 points, or 1.08 percent, at 1,055.83. The Nasdaq Composite Index was down 25.46 points, or 1.18 percent, at 2,134.17.
The Russell 2000 index was down 0.7 percent at 598.32, testing its July low of 587.67.
"A break below that level would see the February low at 580.49 as next support. If the index holds the July low, this could be where the bulls step in," said Bryan McCormick, derivatives analyst at optionMonster.com.
"The S&P 500 has a long way to go to its lows, with next major support at the familiar 1,040 area. This would be a fourth time down in three months, and a fifth time this year. If it holds, you might see a rally attempt," he said.
The PHLX housing index fell 0.6 percent to 89.96, clawing back from a 3 percent drop after it found support near its July low, right above 87.
Merger and acquistions activity continued to play a role in the market, with news on takeover target 3PAR Inc.
Dell Inc is preparing to sweeten its offer for 3PAR, according to a Bloomberg report. The move comes a day after Hewlett-Packard Co bid $1.6 billion for the data storage company.
Shares of 3PAR gained 3 percent to $26.88 while Dell fell 4.4 percent to $11.42. HP, a Dow component, slid 1.3 percent to $38.55.
Medical device maker Medtronic Inc plunged 10.6 percent to $31.30 after it reported first-quarter revenue fell from the prior year and cut its outlook.
Discount retailer Big Lots Inc gave a weak third-quarter outlook and reported a rise in inventory in the second quarter as it posted earnings that barely beat expectations. The stock slid 3.3 percent to $30.71.
The Dow and S&P were on track for their fourth straight day of losses, and both the S&P and Nasdaq were at their lowest point in seven weeks. The Dow was at its lowest level since July 20.
U.S. Treasuries soared as investors shunned stocks, with the two-year yields to topping yet another record low. (Additional reporting by Rodrigo Campos; Editing by Leslie Adler)